Franklin’s Profit Increases 14% on Global Market Rally

Franklin Resources Inc. (BEN), manager of the Franklin and Templeton mutual funds, said fiscal second- quarter profit rose 14 percent as gains in global stock markets increased assets under management.Net income for the three months ended March 31 climbed to $572.8 million, or $2.69 a share, from $503.2 million or $2.32, a year earlier, the San Mateo, California-based company said yesterday in a statement. Franklin was expected to earn $2.51 a share, according to the average estimate of 12 analysts surveyed by Bloomberg.

Chief Executive Officer Gregory Johnson has been urging investors to put more money into stock funds, arguing that equities are likely to deliver better returns than they did in the past decade. With a lineup that is split between stocks and bonds, Franklin can benefit no matter what choices investors make, said Michael Kim, an analyst with Sandler O’Neill & Partners LP in New York.

“They have scale, diversification and a global footprint,” Kim said in a telephone interview before earnings were announced. “It is a franchise that can grow even in uncertain times.”

Franklin shares rose 0.7 percent to $156.17 at 9:43 am in New York trading. Before today, Franklin’s stock rose 23 percent this year compared with a gain of 18 percent for the 20-member Standard & Poor's index of asset managers and custody banks.

Franklin had 39 percent of its assets in stocks and 45 percent in bonds at the end of the first quarter, according to company data. Assets at the firm rose 5.4 percent during the first three months of 2013, compared with the 6 percent gain in the MSCI All-Country World Index of stocks.

Franklin attracted $18.3 billion in net new deposits in the quarter, the most money it has received since the quarter ended June 30, 2011, according to the company. Of the total, $15.6 billion was in fixed-income, $2.8 billion was in funds that buy both stocks and bonds and $200 million was in equities. Sales were strong in the U.S. and internationally, Johnson said in pre-recorded remarks.

In recent years, Franklin’s growth has been driven by the popularity of its $71 billion Templeton Global Bond Fund. (TPINX) Run by Michael Hasenstab, the fund attracted $17.6 billion in 2010 and $13.4 billion in 2011, data from Morningstar show. Deposits dropped to $2.1 billion last year following subpar performance in 2011 when Hasenstab trailed 91 percent of competitors. Investors rewarded the fund with $3.6 billion in the first three months of 2013, according to Morningstar, after it returned 16 percent in 2012, better than 90 percent of rivals.

Franklin’s largest mutual fund, the $75 billion Franklin Income Fund, (FKINX) a mix of stocks and bonds, attracted $1.5 billion in deposits in the first quarter, Morningstar data show. The fund topped 88 percent of peers over the past five years, according to data compiled by Bloomberg.

Franklin has also expanded in alternative investments, agreeing in September to pay about $183 million for a majority stake in K2 Advisors Holdings LLC, a fund-of-hedge-fund manager with $9.3 billion in assets. Starting in 2016, Franklin will acquire the rest of Stamford, Connecticut-based K2 over a period of several years.

--story courtesy of Bloomberg News